Calgari Clothing Company manufactures high-quality silk ties that are marketed under a number of trademarked names. Joe & Vandervelte have been the company's auditors for five years. Lisa Austen, the senior-incharge of the audit, has reviewed Calgari's controls over purchasing and inventory, and she determined that a number of controls can be relied upon to reduce control risk. Austen has decided to test two control procedures over purchases and inventory:
(1) Purchase orders are agreed to receiving reports and vendor's invoices for product, quantity, and price
(2) Inventory is transferred to raw material stores using an approved, pre-numbered receiving report.
Austen decided to use a non-statistical sampling approach based on the following judgments for each control procedure and has judgmentally decided to use a sample size of 40 purchase orders for control 1 and 20 receiving reports for control 2.
After completing the examination of the sample items, Austen noted one deviation for each control procedure.
Required:
What conclusion should Austen reach about each control procedure? Justify your answer